Canada's Economic Position Relative to Japan as Illustrated by the Monthly Average Noon Spot Rate

Source: Statistics Canada, CANSIM using CHASS, v37456 Canada; Japanese yen, noon spot rate, average

This graph truly illustrates three distinct phases. The first phase, shows when the yen and all other currencies (including the Canadian dollar) were pegged to the US dollar until the 1970s. As expected we see not much fluctuation in the spot rate between yen and Canadian dollar. The second phase demonstrates the "Japanese Economic Miracle" until the early 1990's. The relative strength of the yen took off from the Canadian dollar as foreign nations were selling their currencies to buy yen in order to import japanese products, such as cars and electronics. During this phase the high value of the yen enabled the Japanese to purchase assets globally. The third phase illustrates "the lost decade" where the Japanese economy has largely stalled (nearing two full lost decades). The economic fundamentals of the Japanese economy show many threats and weaknesses and also many opportunities and strengths. On the negative side, the demographic position of Japan is terrible. The population is aging and the social safety net that Japan made famous will need to support a huge percentage of elderly. Yet the working age population is tiny due to a persistent low birth rate. The country is also closed to immigration. The country has amassed a massive debt to GDP ratio over 200% that appears it can never pay off. Also, the region has not gotten over the atrocities the Imperial military committed against China, Korea and others. This may make Japanese products less attractive in these markets.

On the positive note, Japan is in the fastest growing region in the world economically, which will help it's exports. It is also an economy that has tremendous technological knowledge and innovation potential which can be sold abroad.